Coronavirus And Its Impact On Global Economy : A Possible GD-PI-WAT Topic

If you want to prepare yourself for the interview, then you will have to be aware of things not just in your country but the world too. And in this case your neighbouring country. There is a lot of stuff happening in China. Since last year to January 2020, it was the US-China Trade War. Now its the outbreak of Coronavirus that originated in Wuhan district of China. All these will have a significant impact on the world economy and geopolitics too. Hence, this is a possible GD-PI-WAT topic. Learn everything about the topic in this article and form an opinion that can lead you to the door of your dream b-school.

What Is Coronavirus?

Coronaviruses (CoV) is a part of a family of viruses. The illness can be anything from the common cold to severe diseases such as Severe Acute Respiratory Syndrome (SARS-CoV) and Middle East Respiratory Syndrome (MERS-CoV). The novel Coronavirus (nCoV) is a new type of strain that was not identified in humans previously. Coronavirus is zoonotic in nature, which means it can be transmitted between animals and people. There are various other types of known coronaviruses circulating in animals that have not infected humans, yet. Signs of this infection include respiratory symptoms, cough, breathing difficulties, fever, shortness of breath and other respiratory symptoms. In chronic cases, the infection can lead to pneumonia, acute respiratory syndrome, kidney failure and even death.

*This information is as per WHO website.

Why Has WHO Called Coronavirus A “Global Health Emergency”?

In 2002, lethal pneumonia-like virus - SARS emerged from China. After 17 years another potentially lethal virus is spreading fast in the world’s most populous country. The virus originated in the Wuhan (the manufacturing and logistics hub of the country) wildlife wet market and has resulted in 210+ deaths and 10,000 confirmed cases of infection in 19 regions of China and 98 cases around 20 countries around the world, but no deaths yet. Most international cases are from people who have travelled to Wuhan, Hubei province of China. However, there are eight cases in Germany, the United States, Japan and Vietnam - patients never visited the place but got infected by people who travelled to China. Hence, "The main reason for this declaration is not what is happening in China but what is happening in other countries," says WHO Chief - Tedros Adhanom Ghebreyesus.

Global Economic Impact

The new year seemed like a ray of hope as the US and China put a tenuous pause to the trade war. The European market remained stable, and Germany (the continent’s largest economy) somehow escaped the possibility of a recession. However, the outbreak of Coronavirus is making the world worry again. Many say that this can lead to global economic slowdown. But, how can one country affect the global economy that bad?

Well, that’s because China is the ‘world’s factory,' hence a principal element of the world economy. Wuhan, the manufacturing and logistics hub of China, is both the epicentre and most impacted by the virus. There are, in total 384 production sites, 89 research and development facilities, 27 logistics sites and 15 administration facilities in Wuhan alone. Hence, the province’s lockdown is bound to have a major impact on the rest of China and the world.

Companies

International companies that rely on Chinese manufacturing for production, distribution and sales in China are already facing many costly problems. Some of them are -

Robert Bosch GmbH, also one of the world’s largest car-parts makers, had to shut down two of its factories employing 800 people in Wuhan.

Honda Motor Co. Ltd. and Nissan Motor Co. Ltd., have followed the same path.

Starbucks, Apple and Ikea have temporarily closed their stores in China.

Shopping malls in China continue to stay deserted, which is threatening the sales of Nike, Mc Donald and many famous clothing lines.

Even General Motors and Toyota have delayed production.

When China was celebrating its Lunar New Year Holiday, many people travelled in and out of China. However, the spread of the disease has led many international airlines like American, Delta, United, Lufthansa and British Airways, to cancel flights to China. This does not bode well for the airlines and tourism industry.

Stock Market

Many investors moved their stocks on exchanges from Asia to Europe to North America, thus shifting their money to traditional safe havens. This has pushed up the value of the dollar, yen, and gold. They even pushed down the oil prices over the fear that weaker economies might spell less demand for fuel. Stocks in Europe and Japan fell more than 2%. In New York, the stock of S&P500 was down 1.6%, along with other companies whose sales are dependent on China especially. Wynn Resorts, that operates casinos in Macau dropped more than 8%.

Industries

The travel restriction has hit both the tourism and supply chain industry very severely. Some deliveries will get disrupted, while others will become more expensive. The entertainment business will also take a huge hit. China’s Disney world has already started experiencing that effect. IMAX, a large screen film company of Toronto, postponed the release of 5 films which were to be showcased in China during the Lunar New Year holiday. The closedown of factories has hit the automobile, apparel and tech industry very badly.

Countries

Apart from America, Europe, etc, smaller countries near China like - South Korea, Vietnam, Malaysia, etc who are dependent on China logistically will also suffer a huge hit.

Who May Benefit From This?

Pharmaceutical companies: The stock price of pharma companies, that provide medicines that are immediately available for symptom relief, is constantly rising. Paul Stoffels, Chief Scientific Officer at Johnson & Johnson has his teams already come up with a "basic work" on the vaccine. It will be available in the market in about a year. Then there are surgical masks and gloves that are purchased by people to protect themselves against becoming infected. Shares in Chinese companies that make these items and protective equipment - has also seen a sharp price rise.

Bitcoin: The hit in China Market had many investors turn to cryptocurrency with massive investments in Bitcoin. Bitcoin spiked to a new high for 2020 and even briefly crossed $9,600.

Countries: The world's dependence on China for manufacturing will reduce due to the spread of the virus, leading to the focus of many companies toward other manufacturing hubs like Mexico, Brazil, India, Indonesia, Bangladesh, etc.

Geopolitics: The outbreak of Coronavirus has slowed down the escalation of US-China Trade war as the world is collectively looking for solutions to stop the virus from being a pandemic.

Where Does India Stand?

India is a neighbour of China. The virus has reached Nepal and India can be next. There is currently 1 confirmed case, 2 that are under observation in Kerala. The people who were detected with the virus had travelled to Wuhan recently.

The Indian government has arranged for the evacuation of 366 Indian citizens in Wuhan by Air India flight on 31 January 2020. These passengers are placed under a quarantine period for 14 days. Another 330 passengers, including 7 Maldivan citizens have also be evacuated by the government, on 01 February 2020. All of them are currently being monitored.

The automotive industry will not get affected by the economic downfall of Coronavirus, says R.C Bhargava, Chairman of Maruti Suzuki. It is mostly because India does not rely too heavily on international exports. However, Tata Motors said that the virus outbreak in China might affect the production of their luxury brand - Jaguar Land Rover.

While India’s automotive industry remains mostly unfazed by the impact of the virus, the same cannot be said for domestic goods. India is the third-largest market of China’s domestic goods. Hence, the Chinese factory shut down and transport ban might cause a problem in the particular industry.

India’s current trade with China stood at $87 billion in the year 2018-19. India is one of the biggest exporters of organic chemicals ($3.2 billion), cotton ($1.8 billion), ores ($1.2 billion), mineral fuels ($2.8 billion), plastic materials ($1.1 billion). And in return, India imports electronic items ($20.6 billion), organic chemicals ($8.6 billion), machinery ($13.4 billion) and other plastic items ($2.7 billion). All of this will get affected badly if the effect of this disease triggers the global economic slowdown.

Important Questions To Expect In The GD-PI-WAT Process

Many are comparing SARS (a respiratory disease also originated in China) with Coronavirus when it comes to stinging the global economy. What is your take?

Will Coronavirus hasten the process of the global economic slowdown?

Is India economically ready to battle Coronavirus?

First trade war and now coronavirus. How badly will it hurt the global economy?

SARS and 2019-nCoV (coronavirus) both are a respiratory disease is the manufacturing hub of the world - China. Is the manufacturing industry to blame?